This paper studies the role and implications of price advertising when shopping trips are costly to consumers. The authors present a model where consumers search sequentially and where stores advertise the price. Their model has a unique equilibrium exhibiting price dispersion. The model generates predictions about the shape of the price distribution and firms' advertising behavior. Also when the initial advertising costs are precisely zero, entry drives the equilibrium to the perfectly competitive outcome; while otherwise entry drives prices higher. Finally, when advertising costs shrink, prices become competitive; however, when search costs shrink, prices remain bounded above marginal production costs. Copyright 1993 by The Econometric Society.

Unlike existing models that rely heavily on assumptions regarding unions' distributional preferences, we present a simple model in which union seniority-layoff rules and rising seniority-wage profiles result from optimal price discrimination against the firm. Surprisingly, even when cash transfers among union members are ruled out, unions' optimal seniority-wage profiles are likely to be completely unaffected by their distributional preferences because of a kink in the utility-possibility frontier. This suggests that the simple technology of price discrimination may play a key role, hitherto unappreciated, in explaining union policies that affect the relative well-being of different union members.